Energy Prospectus

NFX got hit pretty hard. Any suggestions on buy, sell, or hold?

Buy the dips.
Premium Members should take the time to carefully read the "Sweet 16 Detailed Update" that was posted today. There is a table with my Fair Value estimate for each company.

A note from EnerCom containing snips from analysts with coverage.

"In a recent investment presentation, NFX reported that it has spent $125 million to assess its Eagle Ford acreage footprint in 2010. In 2011, NFX expects to invest $200 million to drill 20 to 25 Eagle Ford well in 2011 and run a two to three rig program. The company has an estimated development drilling cost of approximately $5.5 million per well in the Eagle Ford.

Newfield entered into the Eagle Ford with the announcement of the acquisition of all of TXCO's assets in the Maverick basin for $209 million, or approximately $623 per acre in January 2010. TXCO's proved reserves at year-end 2008 were 81.7 Bcfe, which implies a value of $3.91 per proved Mcfe, as compared to the average enterprise value to 2009 proved reserves of $5.46 per Mcfe for the 97 companies in EnerCom's E&P database as of January 7, 2011. The Maverick Basin is a region of multi-stacked pay zones with the most prospective being the Pearsall and Eagle Ford shales.

Simmons & Co. International – January 11, 2011

Newfield Exploration (NFX, $72.05/sh, Overweight) Initial Eagle Ford Results- NFX has released the results of their 11 EFS wells drilled to date on their 335k net acres, all of which were 5,000 foot lateral wells. The most important result is that all of the wells produced light crude oil with API gravities of 30-50 degrees, as there has been some debate if Maverick basin crude oil would be mature enough to be economically viable. From the 6 wells that have been on for at least 30 days, the 24-hr IP's averaged 630 Boe/d (range of 400-900 Boe/d) and an average 30-day rate of 400 Boe/d. NFX had a recent completion IP of 860 Boe/d. The company did have 3 wells with mechanical issues and/or ineffective frac jobs, but the company believes they were not indicative of geologic potential. 2 of which were the company's first 2 wells. EURs are estimated to be 200-400 Mboe/well (85% oil), and the company estimates oil in place is 40-60 MMboe per section. While the company did not provide specific cost commentary in the release, the company is currently drilling and completing wells at ~$7 MM/well ($2 MM drill, $5 MM complete). NFX plans to run a 3 rig program and drill 25 wells in FY'11. If the company continues to see success, that activity could ramp substantially in 2H'11. From an activity stand point NFX believes a 2 rig program will secure all their lease obligations. NFX has entered a long term service agreement for 2011 & 2012 to satisfy all of their completion needs over the next two years. Average 24-hr IP's of 630 Boe/d, with estimated EURs of 200-400 Mboe/well are below some other operators in other areas of the Eagle Ford Shale, but that was as expected given the location/depth of NFX's acreage. Overall, NFX's Eagle Ford results increased our NAV by $3/shr to $84/shr, and we believe this news should be well received as some investors may have been discounting NFX's Eagle Ford potential due to worries that the crude would be too heavy.

Wells Fargo Securities – January 11, 2011

NFX: Eagle Ford Results Announced

Summary: Neutral To Slight Negative. NFX announced results from its first 11 Eagle Ford wells. Seven wells came on between 400-900 Boe/d, in line with industry results in the oil window, one well is currently completing and three wells encountered mechanical or completion difficulties. NFX is looking to ramp activity in H2 2011 with continued success, running a minimum of two rigs to hold acreage. We would characterize the results as neutral to negative, given Street was awaiting results and was viewing them as potential catalysts. While results in line with industry, probably not enough to get the Street excited.

Eagle Ford Results. NFX reported results from its first batch of 11 wells, which was just below targeted goal of 13 wells in 2010. 6 wells on prod'n for over 30 days came on at 24 hour IP rates of 400-900 Boe/d with an average of 630 Boe/d; 30-day rates averaged 400 Boe/d. A 7th well came on at 860 Boe/d and an 8th is completing. The remaining 3 wells had ineffective stimulations and/or mechanical issues. Based on 90 day prod'n histories, NFX estimates EURs between 200-400 MBoe, likely a conservative estimate given limited number of wells in the area, but lower than competitors in the area who have stated 400+ MBoe EURs (namely APC). We also note the 200-400 Mboe is lower than other operators have published in other parts of the play, but that although NFX didn't disclose well costs, we would expect these wells to be shallower and thus less expensive. Could make for equal or better economics than higher EUR wells.

Pearsall Update. NFX acquired an additional 50% working interest as well as operatorship in the Pearsall Shale, where two wells have been drilled and await completion in Q2 2011. While near term gas prices have impacted Pearsall activity, longer term we believe this formation could provide meaningful upside potential.

2011 Plans. NFX will look to significantly ramp investment in H2 2011, pending additional success. Light on details, though NFX will focus on optimizing completions, spacing, IP rates and EURs and will run a minimum of a 2 rig program to hold acreage. Importantly, NFX has entered into an agreement with a major service provider for frac crews to meet completions for 2011-12.

Stock Thoughts. We would characterize the results as neutral to slight negative, given that many on the Street were viewing this as potential catalyst. Not necessarily that wells are uneconomic, but we think Street needed to see higher IP's to get share outperformance. On the positive side, we do note that there has been a degree of skepticism on the Street regarding the prospectivity of western Eagle Ford acreage while not eye popping results, should remove some doubt. We note that within our NAV, we currently give $4.84/share credit in our $77 NAV for NFX's Eagle Ford acreage-not sure what most have built in, but our gut tells us below our $4.84/share.

Bank of America Merrill Lynch – January 11, 2011

Results promising, liquids content is big surprise

Newfield released the long-awaited results from its 2010 drilling program in the Maverick Basin tonight. The results were good, with EUR of 200-400 Mboe, consistent with our expectation, but with the surprise of having high-quality oil as the principle hydrocarbon. IP rates (24 hour) have averaged 630 boepd in the play. Though current well costs are running $6.5-7 mm, Newfield is hopeful of bringing costs eventually down to $5.5 mm.

Liquids improve pricing and increase recovery factor

Newfield believes that its entire 335,000 net acre position in the play is within the oil window based on its drilling. Eleven wells were drilled with production of 30-50 API gravity oil. The light oil production should be mobile, leading to a good recovery factor. The high-quality oil should also receive a premium to WTI.

Liquids uplift boosts EUR

The high Btu gas (1300) that makes up 20% of unprocessed production should provide an NGL uplift of about 7%, bringing EUR to 320,000 vs. the unprocessed EUR of 300,000. We estimate that the oil/NGL/gas ratio is 75/11/14 for this play.

Taking development slowly as returns still lag

Newfield plans to double spending in the play to $200 mm in 2011, with most of the incremental capital effectively coming at the expense of GOM activity. We estimate that returns still lag the Monument Butte and Bakken plays and, hence, Newfield is holding back more aggressive development until costs come into line.

PO increases by $2 per share on derisking

The wide spread of the wells drilled throughout the play derisk the play, with over 500 mmboe potential, in our view. Our PO increases by $2 per share, to $79, based primarily on increasing the risking to 20% from 13% for this play.

Pritchard Capital Partners - January 11, 2011

Newfield Exploration (NFX-$72.05) said today that a months-long drilling program to assess its south Texas oilfields has confirmed that its 335,000 acres there sit within an oil-rich portion of the Eagle Ford shale formation. Newfield acquired the acreage from bankrupt TXCO Resources in February as part of a joint acquisition with Anadarko Petroleum, Dow Jones reported. Newfield executives have estimated that the company paid about $400 per acre once the value of producing wells was discounted. The company drilled 11 wells in the Maverick basin. Peak daily production ranged between the equivalent of 400 and 900 barrels of oil, Newfield said today. In addition to examining the fields' production potential, wells were drilled to satisfy lease obligations, the company said. The company said it plans to continue to drill with at least two rigs to meet lease requirements.

Howard Weil – January 11, 2011

NFX $72.05 (MO): Provides Eagle Ford Assessment Results

Quick Take: Newfield's initial results from the Eagle Ford confirm our valuation on the play, with initial drilling results primarily in line with our expectations. The observed IP rates are slightly below our estimate of 700 Boepd, which we believe is attributable to the learning curve in the play. EUR expectations are in line with our estimates. The additional acreage added (35,000 net acres) does not materially add to our $3.43/share valuation given that we continue to risk the acreage by 50%. Assuming a full de-risking of the 335,000 net acres and a perpetual annual well count double our current estimate of 25, the NAV would creep to almost $7/share, illustrating the upside potential of the asset based on $80 long-term oil. We reiterate our Market Outperform recommendation on the stock.

Key Observations: NFX has drilled 11 wells on its 335,000 net acre position in the Eagle Ford. All 11 wells were drilled with lateral lengths of 5,000 and encountered high quality oil pay. Average IP rates have been in the 400-900 Boepd range with 30 day rates of 400 Boepd. EUR's on the wells that have been producing for more than 90 days are estimated at 200-400 MBoe.

Pritchard Capital Partners – January 11, 2011

NFX ($72.05-B-$77) – Eagle Ford update, Alberta Bakken in Q2

Encouraging results in Eagle Ford but still relatively early to call it the flag-bearer

EUR of 200-400 MMBoe a little light relative to what other operators on the East have reported

Plans to spend $200 million drilling 25 EF wells in 2011 after spending $120 million drilling 11 EF and two Pearsall wells in 2010

Results from Alberta Bakken most likely a Q2 event

NFX – Eagle Ford Update – NFX reported encouraging results from its first six EF wells. Although it has drilled 11 EF wells, three of those had sub-optimal completion and/or mechanical issues. Six wells with more than 30 days of production history had IP's between 400-900 boe/d averaging ~400 boe/d over the 30-day period. Its most recent completion tested at 860 boe/d and another EF well is currently in flow-back stage. The estimated EUR's of 200-400 Mboe is on the lighter side as compared to other companies due we believe to the less number of stages per well, as NFX has been completing these wells with 10-12 stages per well while the other operators in the EF oil window have been completing wells with 12-20 stages per well. The current costs for NFX's EF wells have been around $6.5 million to $7.0 million with completion accounting for the majority of the costs, as the drilling costs have been only $2.0 million per well for these wells. The company estimates that under a full field development scenario it could reduce these costs down to $5.5 million per well as the reservoir on its acreage position is significantly shallower with True Vertical Depth (TVD) ranging from 3,000 to 7,000 feet. NFX plans to spend $200 million drilling 25 EF wells in 2011 after spending $120 million drilling 11 EF and two Pearsall wells in 2010. The company expects to complete one of the Pearsall wells this weekend and the other the week after that. Although lower than on the eastern portion of the EF play, the pressure gradient on NFX's EF position is approximately 0.65 psi/foot, indicating a nicely geo-pressured reservoir. Moreover, porosity of around 10% on its acreage compares very well with the Eastern part of the play. However, due to the early nature of the development, NFX will have to drill more wells before it can de-risk a significant portion of its EF position. Although encouraged, we are not yet increasing our estimate of about $5/share for its EF position in our NAV, which could go up significantly once its acreage gets de-risked. Due to the lack of service infrastructure, the completion program in the Alberta Bakken in Montana is going slower than expected, and we now believe hearing results from this play is likely a Q2 2011 event instead of Q1. We maintain our $77 price target on the stock.

Capital One Southcoast – January 11, 2011

NFX Provides Initial Eagle Ford Results; Increasing Tgt to $89

$72.05, ADD, $89.00 Target

Positive Eagle Ford results from NFX as the company estimates that the majority of its 335K net acres in the Maverick Basin is in the Eagle Ford oil window with EURs of 200 - 400 Mboe. NFX has drilled 11 Eagle Ford wells across the acreage with the 6 wells already online 30+ days having an average 24-hr peak rate of 630 boe/d and average 30-day rates of 400 boe/d. NFX's acreage is primarily located in western Dimmit & Maverick Counties and, to a lesser extent, Zavala County. We are adding $6 to our target price based on 50% of the acreage, 160-acre spacing, 300 Mboe EURs, and $6MM well costs. Our new valuation equates to about $4K/acre vs $2K/acre previously. This news helps to extend the western edge of the play and NFX's EUR estimates top HK's estimate of 150 - 250 Mboe for its Red Hawk area in Zavala. Consequently, we think this news helps HK, since we assign zero value to its 76K net acres in Zavala. NFX plans to run a minimum of 2 rigs in the Eagle Ford in 2011 and expects to substantially ramp up activity in 2H11 upon continued drilling success. We will look for more details on the play, including expected well costs, during our investor call with NFX Thursday morning.

Johnson Rice & Co. – January 10, 2011

NFX has announced positive results from its much anticipated Eagle Ford shale assessment program. EUR's of 200-400 mboe have been seen in the initial wells though we would expect that to increase as NFX refines completion techniques. Our NAV had been $85 per share with only minimal Eagle Ford success built in. With these results our early look at an updated NAV moves to $95 per share with further upside as the acreage is proved up. We reiterate our Overweight rating.

Newfield has announced very positive results from its initial drilling efforts in the Eagle Ford shale.

11 wells have been drilled to date though three of those wells had poor completions or mechanical issues.

For the wells with at least 90 days of production history, EUR's are seen in the 200-400 mboe range. The production is 85% oil with 1,350 BTU gas.

Six wells have at least 30 days of production history. These wells have averaged 630 boe/d for a 24-hour peak rate while 30-day rates averaged 400 boe/d. The most recent well just came on at 860 boe/d and is not included in the production or EUR figures.

With more than 335,000 net acres NFX has unrisked reserve exposure of more than 600 mmboe, assuming 160-acre spacing. This compares to year-end 2009 proved reserves of just under 500 mmboe.

NFX had run a 3-5 rig program in testing the acreage and a minimum 2-rig program in planned for early 2011 with a significant ramp-up planned in 2H11. The early 2011 program will work to meet drilling obligations and hold acreage while optimizing completion techniques. Once management is comfortable that it has enough data in hand, drilling will be accelerated in the back half of the year.

Well costs for the early wells have ranged between $6.5 and $7.0 million though that has included a lot of incremental science work. The company expects that wells in a true development phase will cost around $5.5 million.

A contract has been signed with an unidentified service company to provide all necessary completion services through 2012. This will ensure access to crews and equipment as the program accelerates in 2H11.

If we assume that just 60% of the 335,000 acres are good, using the 300 mboe EUR mid-point, NFX has net reserve exposure of 240 mmboe. As the drilling program progressed, that figure offers significant upside with improve completion techniques and potential downspacing. At just $5/boe in the ground, that is more than $10 per share in NAV added.

The company has also added to its Maverick Basin acreage position that is prospective for the Pearsall shale. NFX has added an additional 50% working interest from a partner and taken over operatorship. Two wells have been drilled though the wells won't be completed until later in 1Q11.

We are also awaiting initial drilling results on the company's Alberta Bakken acreage. Success here will also bring a meaningful increase in NAV as we have little built into our NAV."

George;
Great post, thanks.
In a world clearly heading to $100/bbl oil, what NFX has in the Eagle Ford and Alberta Basin Bakken are worth a lot more than the market is giving them credit for. I think NFX has a lot of upside for us as these stories unfold.